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Madhya Pradesh High Court · body

2009 DIGILAW 486 (MP)

Vimalchand v. Arora Distillery (P) Ltd. Co.

2009-04-15

SHANTANU KEMKAR

body2009
ORDER 1. This revision has been filed under section 115 of the Code of Civil Procedure against the order dated 12.3.2008 passed by X Additional District Judge, Indore in Execution Case No. 19105. 2. Brief facts necessary for disposal of this revision lies in narrow compass, the non-applicant No.1 on the basis of an Arbitration Award dated 1.8.1994 passed against the non-applicant No.2 submitted an application MJC No.2 1199 under section 17 of the Arbitration Act, 1940 (for short the Act of 1940) before the District Judge, Vidisha for making the award rule of Court. The said application was contested by the applicant No.2. The District Judge, Yidisha after recording the evidence led by the parties vide order dated 28.2.2003 passed a decree in favour of the non-applicant No.1 and against non-applicant No.2 for a sum of Rs.14, 14,275/- with interest at the rate of 6% per annum from 23.5.1994 till payment. 3. The non-applicant No.1 decree holder applied for execution of the said decree from the personal properties of the present applicant Managing Director of non-applicant No.2 Company instead of non-applicant No.2 judgment debtor) M/s. Friends Bottling Private Limited. In the circumstances, the applicant filed an application before the Executing Court invoking section 47 of the Code of Civil Procedure inter alia on the ground that the decree has been passed against the non-applicant No.2 a Private Limited Company and as such it can only be executed against the company and not against the personal properties of the applicant. After hearing the parties on the said application, the Executing Court rejected the application of the applicant and ordered for issuance of recovery warrant against the personal properties of the applicant. Aggrieved by the said order dated 12.3.2008 the applicant has filed this revision. 4. Shri G .M. Chaphekar, learned senior counsel for the applicant argued that the decree has been passed against the non-applicant No.2 Private Limited Company which is a distinct legal entity than the applicant who is its Managing Director and, therefore, decree against the judgment debtor company cannot be executed against the applicant Managing Director of the said Company. He submitted that there is no provision in the Companies Act making the Managing Director of a private company personally liable for recovery of dues against the company. He submitted that there is no provision in the Companies Act making the Managing Director of a private company personally liable for recovery of dues against the company. In support of his submissions he placed reliance on a judgment passed by this Court in the case of Pravinchand Parakh v. Navratanmal Nahata and others [1995 MPU SN 59), and also on Kuriakose v. P.K. V Group Industries and another [2002 vol. III Company Cases 826], K.S. Narasimhan v. Commercial Tax Officer. Kuralagam, Amlexe, Chemzai [(2008) II YST 283], Om Prakash Balecha v. State of Haryana and others [(2008) 135 Company Cases 799]. 5. Shri R.S. Laad, learned counsel appering for the non-applicant No.1 on the other hand supported the impugned order and argued that as the address of residence of the applicant and the address of the non-applicant NO.2 Company being one and the same the applicant himself is a person responsible to satisfy the decree. He argued that the name of the non-applicant No.2 Company has been ordered to be struck off from the records as per portal of the Ministry of Corporate Affairs, the Director of the Company is personally liable for the liabilities/dues arising after such striking off the name of the company. He submits that if the corporate veil of the non-applicant No.2 is lifted it would be clear that it is only the applicant who is liable to satisfy the dues of the company. In support of his contentions, he placed reliance on section 45 and Proviso (a) of sub-section (5) of section 560 of the Companies Act. He also placed reliance on the judgment of the Delhi High Court in the case of Saurabh Exports v. Blaze Finlease and Credits Pvt. Ltd. [(2006)133 Company Cases 495]. 6. Having heard learned counsel for the parties, I find that the only question involved in this revision is whether the decree obtained against the Company can be executed against the personal property of its Managing Director. 7. After considering the contentions raised by the learned counsel for the parties, I am of the view that the impugned order passed by the Executing Court cannot be sustained. Admittedly, the Arbitration Award was passed against the non-applicant No.2 Company. The said award was made rule of Court and the judgment and decree was passed by the District Judge, Vidisha against the non-applicant No.2 Company and not against the applicant. Admittedly, the Arbitration Award was passed against the non-applicant No.2 Company. The said award was made rule of Court and the judgment and decree was passed by the District Judge, Vidisha against the non-applicant No.2 Company and not against the applicant. 8. This Court in the case of Pravinchand Parakh v. Navratanmal Nahata and others (supra). has held that a duly registered Company is a distinct legal entity than its Directors. The fact that the Directors have shares in the Company is no ground to hold that the decree obtained against the company would be binding on the Directors or that it can be executed against their personal property. High Court of Madras in the case of K.S.Narsimhan v. Commercial Tax Officer, Kuralagam Annzexe, Chennai (supra), after considering the judgments of various High Courts has held that a Company is a legal entity by itself and it can sue or can be sued as a legal entity and any dues from the company has to be recovered only from the company and not from its directors. In Kuriakose v. PK. V. Group Industries and another (supra), the Kerala High Court after considering the judgments of the various High Courts including the judgment in the . case of Santanu Ray v. Union of India [( 1998)3 Compo LJ 259], in which it was observed that in certain circumstances the Court may disregard special legal entity of the company if it was formed or is used to facilitate the evasion of legal obligations where individual directors of a company were sought to be proceeded against for evasion of excise duty, the corporate veil was directed to be lifted to determine whether a particular director could be proceeded against or whether he was liable for payment of all duties, the learned Single Judge of Kerala High Court noticing the fact that such question as was involved in the case of Shantanu Ray v. Union (of India (supra), does not arise in the case before it held that there is no provision in the Companies Act making the Managing Director of a private company personally liable for recovery of duties against the company and that the company is a separate legal entity and its liability cannot be imposed on officers or directors. In the case of H.S. Sidana v. Rajesh Enterprises [1993 Vol. In the case of H.S. Sidana v. Rajesh Enterprises [1993 Vol. 77 Punjab and Haryana 251], it was held that where there was a decree for recovery of sums due to a Bank from a company in a suit against the company and its Managing Director, the liability to discharge the decretal amount was that of the company and not of its Managing Director. The executing Court could proceed against the Managing Director of the judgment debtor company only if it came to the conclusion that the Managing Director was personally liable to discharge the decretal amount. 9. Having regard to the aforesaid, I am of the view that a decree passed against a private company which being a distinct legal entity it cannot be executed against its Managing Director or Directors and the Managing Director or Directors cannot be held personally liable. The non-applicant No.1 decree holder could not have proceeded against the personal properties of applicant Managing Director of the non-applicant No.2 Company for recovery of the decretal amount merely on the ground that the residential address of the applicant is the same as is the address of non-applicant No.2 Company. 10. In the case of Saurabh Exports v Blaze Fin/ease and Credits Pvt. Ltd. (supra), which was passed in the suit the Delhi High Court while deciding the suit on the basis of the evidence laid in it was of the view that the defendant No.1 Company is nothing but a front for the defendants. On scrutinising the testimony of the Director of the Company it was observed by Delhi High Court that he was extremely evasive during his cross-examination and a finding has been recorded in the said suit that the plaintiff is sought to be defraud of the amount of Rs.15 lacs under the cloak of a corporate entity of defendant No.1 Company and in the circumstances corporate veil must be lifted specially taking into consideration that the defendant No.1 Company was only a family arrangement of the defendant. However, there is no such findings in the decree passed in the present case and no such foundation was laid before the executing Court thus this judgment of the Delhi High Court has no application to the facts of the case. 11. However, there is no such findings in the decree passed in the present case and no such foundation was laid before the executing Court thus this judgment of the Delhi High Court has no application to the facts of the case. 11. As regards the submissions made by the learned counsel for the non-applicant No.1 placing reliance of section 45 of the Companies Act which provides that if at any time the number of members of a company is reduced in the case of private company below two and the company carries on business for more than 6 months while the number is so reduced every person who is the member of the company during the time it so carries on business with fewer than two members shall be severally liable for payment of the whole debts of the company contracted during that time and may be severally sued there for. However, I find that no such foundation was laid before the executing Court and the decree was not sought to be executed against the applicant Managing Director on this ground. As regards the non-applicant NO.1's placing reliance on proviso (a) of sub-section (5) of section 560 of the Companies Act, I find that the same is wholly misconceived as it has got no applicability whatsoever to the facts of the case. 12. In view of the aforesaid discussion, the revision is allowed. The impugned order directing execution of the decree from the personal property of the applicant Managing Director of the judgment debtor Company deserves to he and is hereby set aside.